The Tipping Point

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The next time you travel to Sweden, you can leave your krona at home. In response to a rise in mobile payment platforms, the nation has become increasingly cashless, and many local businesses no longer accept bills or coins. With the rise of mobile payment apps like Venmo and Square Cash, and cryptocurrencies like bitcoin, is the United States headed in the same direction?
Probably, says UC Santa Barbara professor of economics Rod Garratt, who believes financial institutions and consumers alike should prepare for a future with much less physical cash. An expert in digital currencies, Garratt recently spoke about the issue in front of the U.S. House of Representatives Subcommittee on Monetary Policy and Trade at a hearing on the future of money. He discussed a number of different scenarios for the decline of cash, and how they could affect both banks and consumers.

“There are multiple ways that things could unfold as cash disappears,” Garratt said in a subsequent interview. “One possibility is that people will be content to transact primarily in commercial bank deposits and things will be business as usual only with much less cash around. Another possibility is that people will demand direct access to some form of digital, central bank-issued money, as a replacement for cash. And a third possibility is that people will turn to privately issued cryptocurrencies, like bitcoin.”

Garratt believes that central banks should be prepared to handle any of these possibilities. “Central banks might want to be proactive here,” he said. “I’m thinking about a future world where cash use has declined to the point where it is starting to disappear. The question is, do the central banks get out of that game altogether? Or do they offer a substitute? I think they should at least be working towards offering a substitute.”